(This essay was published in South China Morning Post on 18 March 2015.)


Parallel trading has created inconveniences for a large number of Hong Kong residents. The blame has been placed on Mainland visitors. However, they are not the only ones moving goods across the land border between Hong Kong and Shenzhen.


According to reports, an estimated 60% of them are Hong Kong residents. The rest are predominantly Shenzhen residents since they are the only people granted multiple-entry endorsements.


There have been calls to cap these one-year multiple-entry permits. However, if Shenzhen traders are effectively curtailed then Hong Kong traders will immediately replace their numbers.  Capping multiple-entry permits would therefore have no effect on parallel trading activity.


Capping the individual visit scheme and how to do so is a matter where many diverse interests are involved. According to a government study, the scheme contributed $26.1 billion in value-added (1.3% of GDP) and 114,280 jobs (3.1% of total employment) to the economy in 2012. These are very large figures.


Two alternatives could offer more effective relief from parallel trading activities. First would be to build border shopping centers in Hong Kong located away from local communities. Transportation and border crossing arrangements could be organized to reduce inconvenience to others who cross the border.


Second would be to set up duty free shopping centers in Shenzhen that could be rented out to Hong Kong operators and obviate the need for parallel cross-border trading altogether. Over time these centers could be rented out to local operators, which could lead to innovation and competition in retail services in Shenzhen and may over time spread to other Mainland cities.


Creating border area shopping centers in Hong Kong would be relatively easy to do and would not hinder the significant numbers who come to Hong Kong to enjoy a shopping experience and other tourist services that contribute to the economy.


The duty free shopping centers in Shenzhen would require difficult policy approvals that would take time to secure. But in the long-term, these measures would change the retail environment on the Mainland and the mix of visitors coming to Hong Kong.


Parallel trading has also given rise to another local impact. We have seen members of radical political groups behave as hooligans under the disguise of populist politics to protest the traders. Some features of their behavior bear amusing resemblance to other organizations in history that were motivated by political ideology. The best researched in modern times is the Ku Klux Klan, which was examined by economist Steven Levitt in Freakonomics.


The Klan was founded in 1865 immediately after the Civil War by six former, like-minded Confederate soldiers and quickly evolved into a multistate terrorist organization designed to frighten and kill emancipated slaves.


The federal government clamped down but in the early 1900s the Klan experienced a revival, portraying its members as crusaders of white civilization. By 1920 it claimed 8 million members and chapters throughout the U.S. It not only targeted blacks, but also Catholics, Jews, communists, unionists, immigrants, and others who did not fit into their ideas of the status quo.


The onset of World War II briefly laid the Klan low, but within a few years, membership flourished again. The lynching of blacks continued, but became increasingly rarer. TheThe Klan had succeeded in striking a terrible fear in the heart of every black person that if they violated accepted codes of behavior, whether by talking back to a bus driver or daring to vote, they would be punished, perhaps killed. It used a very powerful incentive – the fear of random violence, the terrorists’ threat.


The Klan after the war was in fact a sorry fraternity of mostly poorly educated men with poor prospects, who needed a place to vent. But it still developed a slick moneymaking operation and had great designs on political influence, culminating in the election of Grand Wizard David Duke to the Louisiana House of Representatives in 1989 (he ended up in prison in 2003 for tax fraud and scamming his supporters).


What has kept the organization in check is the public revelation of its secrets, starting with a radio program in 1948 and building up over the years that enabled its opponents to act to erode its support. Although the Klan still exists, its ability to strike fear has ended and its political activities are increasingly ordinary.


The Hong Kong public should also be better informed about the myths and truths behind those local groups who advocate extremist ideologies.

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